The Battle Has Begun: False Arguments in the False Claims Act
The False Claims Act (FCA) allows whistleblowers to step forward to expose systemic Medicare fraud, Medicaid fraud, pharmaceutical fraud, defense contractor fraud, PPP loan fraud and pretty much any economic fraud against the government. In turn the whistleblower is entitled to up to thirty percent of what the government recaptures as a whistleblower reward which has cumulatively resulted in billions of dollars in False Claims Act whistleblower awards.
In order to bring a False Claims Act lawsuit you must have a whistleblower law firm commence the action. The government then investigates the claim and even though the case is filed secretly at some point the defendant, when it gets wind of the investigation or lawsuit will lawyer up. It’s hard to defend conduct when the defendants are proverbially caught with their hand in the cookie jar, but that doesn’t stop defense counsel from trying to murky up the waters to either outright defend or try to obtain a mitigation or reduction in damages. They have a job to do so you need to respect their ingenuity, however, some of their techniques are just smoke and the government should not cower to smoke without substance nor offer substantial discounts unless there’s some meat to the argument, even if the meat isn’t meritorious at the end. With the False Claims Act calling for treble or triple damages plus relator’s share attorneys’ fees and generally millions if not hundreds of millions or billions at stake, pumping a few hundred thousand dollars into some tenuous arguments may save some big bucks – this blog attempts to expose some of the weak arguments defendants tender to try and block liability and/or reduce damages. When hiring the best whistleblower law firms to defend, even they will come up with some stinkers as defenses, but since they don’t know what will stick and big money is in play, they try to play with some of these techniques and defenses.
Here are some of the attempted defenses in no particular order, some couched in terms that have the FCA hot buzz words like materiality or objective falsity and others as old as a defense as litigation such as solvency which we’ll start with:
Where did the money go? Despite hundreds of billions of dollars of Medicare fraud, elaborate billion dollar defense contractor scams, lofty pharmaceutical schemes and outright PPP loan fraud crime, when the False Claims Act defendants come to the table they seem to not know where the money went. Sometimes the solvency defense is incongruent with reality as they will have two brand firms with three partners per email working up the case, dumping millions into the defense and then when it’s time to pay the piper they pull out their pockets and claim there’s nothing there despite defrauding the government millions upon millions of dollars. In regular litigation vetting solvency defenses is tricky to do because you may not have the ability to conduct discovery and to some extent will have to take the defendant at his/her word. With False Claims Act cases the government can and should insist upon a deep dive into ability to pay issues and have various corporate officers sign off on penalty of perjury about submissions regarding ability to pay.
With the landmark Escobar opinion, the Supreme Court signaled that there’s a certain line somewhere where trivial non-compliance with a government implied or express contract is not necessarily grounds for False Claims Act liability. Defendants of course contorted that to argue that almost everything is
immaterial and further developed an elegant argument that most courts are no longer buying that if the government continued to pay after being on notice of the FCA complaint, then they must have thought that it was immaterial. Breaking that argument down if the victim (the taxpayers) continue to be victimized then they are not entitled to relief for some bizarre reason that’s off point logic. There’s plenty of reasons why the government as the victim would continue to pay, first and foremost and defendants should appreciate this, is that they may be entitled to explain their conduct before the government makes a decision on continued payment, second by choking off payment early it will clue defendants in about the investigation and thus compromise it. The government and the courts should not buy into frivolous materiality arguments as a defense.
Subjective Falsity, Objective Falsity – Just Outright Falsity
With the Super-Valu case, the Supreme Court somewhat ended this controversy, but if a defendant was acting with intent to defraud the government, its postliminary attempts to try to justify the conduct or assert it had a good faith to do so based on reliance on information it did not have at the time should be discredited. It’s one thing if it’s not a violation per se and thus an inchoate violation, but it’s another thing to retroactively assert a good faith basis for a belief that wasn’t before the defendant at the time. The False Claims Act plaintiffs bar should call this the Time Machine Defense and appropriate commensurate derision.
Ignorance of the Law
One of the first things you learn in law school is that ignorance of the law is simply not a defense, but it doesn’t stop defendants from trying to squeak it. Medical professionals may try to argue that with the extensive regulations and codes that they were not aware of the specific legal requirements regarding billing, coding, or other healthcare-related regulations. Yes, there are a lot of laws and regulations on the books and yes dealing with the government is not always the easiest, but by enabling a defense along those lines it would eviscerate the fabric of the law itself. Sure, some jurisdictions are foolishly not prosecuting shoplifters, but it’s still a crime and if caught, saying they didn’t know it was one would not be a defense of it. Instead of shoplifters stealing hundreds of dollars of merchandise, False Claims Act actors are stealing billions of dollars of taxpayers’ dollars and if you’re in the industry you need to have the right people coding and billing or you shouldn’t be in the profession. But what if everyone’s doing it? That leads us into:
Everybody’s Doing it Defense
If you’re ever pulled over for speeding and tell the officer that everyone’s going 90 today, the implications are why should you be busted even though you’re guilty. Similarly, some defendants will try to convince the government there’s a pattern and/or practice of everyone behaving in the same manner so therefore the conduct somehow should magically become lawful. It could be a simple COVID upcoding scheme where they say inherently COVID is an illness so even though an asymptomatic patient presents he should be billed as symptomatic or a more elaborate kickback scheme. It would be gutsy for a defense counsel to present a defense to a kickback trying the everybody’s doing it defense, since the Anti-Kickback Statute (AKS) provides for civil and criminal penalties for kickbacks when government money is involved, but its possible an unrepresented defendant would instinctively and wrongly assert it. It may be something along the lines of everyone is offering “Medical Directorships” for Medicare patients, but in fact there’s nothing real about the director position, or everyone’s giving freebies like
vacations or having contests with lavish rewards to prescribe a certain pharmaceutical product. No matter what it is the defense should and would fail under the FCA and AKS and all that it leads to is awareness of more FCA defendants.
Lack of Intent
Another false argument frequently raised in FCA litigation is the lack of intent. Medical professionals may argue that they did not intend to defraud the government or that their actions were accidental. While intent can be a factor in FCA cases, the law primarily focuses on the submission of false claims, regardless of the individual’s intent. Proving intent can be challenging, but the absence of intent does not absolve one from liability if they knowingly submitted false claims. The collision of concepts between knowing submission and lack of intent to defraud is often an issue that needs to be vetted through discovery, but when sliced through generally doesn’t hold water.
Reliance on Expert Advice- Garbage In = Garbage Out
If you tell your lawyer the truth, but not the whole truth, omitting key parts the advice you receive is incomplete and you would have no basis to rely on it as a defense. For example, if a company asks a lawyer or an accountant if it was eligible for a PPP loan and indicates the money will be purposed for the employees and the lawyer says, “yes,” but fails to disclose it owns twenty interrelated companies and in aggregate is requesting over $50 million in PPP loans for its web of companies, it has committed PPP loan fraud since it’s exceeding the aggregate funding cap. It cannot rely on the lawyer or accountant’s opinion because it failed to disclose all the relevant circumstances. Some medical professionals attempt to shift blame onto consultants, billing companies, or other third parties, claiming that they were merely following their advice. While seeking expert advice is common in healthcare, it does not absolve an individual or entity from liability under the FCA. Ultimately, the responsibility for accurate billing and compliance with healthcare regulations rests with the healthcare provider. Passing the blame to others is a weak defense and does not excuse fraudulent behavior, although it may give some mitigation if done in earnest and may further expose the expert to some liability.
These are just a handful of defenses and mitigations that are raised that often have very little, if any, substance. If you’re encountering a potential False Claims Act defense or want to file an FCA lawsuit but are worried about the defenses your company may spring, feel free to write us for a free, confidential consultation, or if you want us to write a specific False Claims Act blog or other whistleblower topic, feel free to suggest what you’d like us to blog about or do a video on.